Deck 1: Introduction

Question 1

Primarily, macroeconomists use microeconomic principles to study

A)long-run economic growth and employment policies.
B)short-run and long-run economic growth.
C)long-run economic growth and business cycles.
D)business cycles and trends in the stock market.
E)trends in the stock market and long-term economic growth.

Answer 1

C

Question 2

In a macroeconomic model, equilibrium is when

A)everyone in the economy is happy.
B)the actions of consumers and firms are consistent.
C)nothing is changing.
D)the government has achieved an efficient allocation of resources.

Answer 2

B

Question 3

Which of the following topics is a primary concern of macro economists?

A)choices of individual consumers and firms
B)fluctuations in the level of aggregate economic activity
C)standards of living of individuals
D)relative wages of skilled and unskilled workers
E)short-run growth models

Answer 3

B

Question 4

What explains the trends in nominal interest rates?

A)standards of living
B)wages
C)consumer incomes
D)aggregate economic activity
E)inflation rates

Question 5

Persistent current account deficits make sense if

A)personal income taxes are reduced.
B)government interest rates go down accordingly.
C)the associated foreign borrowing is used to finance increased productive capacity.
D)the capital account surplus is reduced.
E)the government budgetary debt is not growing.

Question 6

The real interest rate is

A)equal to the rate of inflation minus the nominal rate of interest.
B)the market interest rate.
C)equal to the nominal rate of interest minus the rate of inflation.
D)less important for decision making than the nominal rate of interest.
E)always equal to the pure rate of time preference.

Question 7

During the 2008 2009 recession in Canada

A)unemployment decreased.
B)inflation increased.
C)exports increased.
D)exports decreased.
E)the real interest rate increased.

Question 8

Neo-Fisherism says

A)the central bank should increase inflation by raising the nominal interest rate.
B)the central bank should increase inflation by lowering the real interest rate.
C)the central bank should increase inflation by lowering nominal interest rates.
D)that Fisherism is wrong.
E)the central bank should increase inflation by lowering the money supply.

Question 9

Canada has become a more open economy because

A)greater trade restrictions elsewhere in the world make trade with Canada attractive.
B)of the European Union.
C)the United States has a fragile financial sector.
D)it is cheaper to ship goods between countries, and there are fewer trade restrictions.
E)the Bank of Canada promotes international trade.

Question 10

The unemployment rate in 2018

A)was higher than in 2009.
B)was at its peak for the period 2008-2018.
C)was higher than the unemployment rate in the United States.
D)was at about the average peak in the previous three recessions.
E)was lower than the unemployment rate in the United States.

Question 11

Reductions in the real interest rate caused by monetary policy

A)are always harmful.
B)are permanent.
C)do not occur during recessions.
D)never happen.
E)are temporary.

Question 12

A trade-off between aggregate output and inflation

A)is the basis for fiscal policy.
B)sometimes exists, and is stable.
C)is not theoretically possible, and is not observed in practice.
D)is theoretically possible, but has never been observed in practice.
E)sometimes exists, but is unstable.

Question 13

Countries gain from

A)taxes.
B)long-run tradeoffs between aggregate output and inflation.
C)trading goods and assets with each other.
D)inflation.
E)productivity slowdown.

Question 14

The inflation rate has been low in Canada since 1991 because

A)Canada is trading more with the rest of the world.
B)oil prices have been low.
C)the government's budget deficit was brought under control.
D)the Bank of Canada has a 2% inflation target.
E)employment insurance became less generous.

Question 15

In a competitive equilibrium, we assume that markets are such that

A)firms behave strategically in setting their prices.
B)consumers are price takers while firms set prices.
C)both consumers and firms are price takers.
D)firms are price takers while consumers set prices.
E)consumers behave strategically in setting their prices.

Question 16

Tax cuts

A)cause unemployment.
B)will surely make the government default on its debts.
C)may have no effect, if people take account of future taxes.
D)always stimulate economic activity.
E)cause the government to borrow less.

Question 17

Business cycles

A)occur every five years in Canada.
B)are always caused by the central bank.
C)have a single cause, and unpredictable comovements.
D)cannot be prevented, according to the consensus among macroeconomists.
E)have potentially many causes, but regular comovements.

Question 18

More government spending

A)can compete with private spending and cause crowding out.
B)increases the government surplus.
C)is always beneficial.
D)reduces the current account deficit.
E)lowers the government deficit.

Question 19

Since 1870 in Canada, there has been

A)too many business cycles to sustain economic growth.
B)sustained economic growth.
C)only small growth in average incomes.
D)sustained economic growth until the Great Depression followed by little growth since.
E)GDP measured in 2012 dollars is largely unchanged.

Question 20

According to the Lucas critique, the effects of changes in economic policy

A)do not require macroeconomic theory.
B)cannot always be predicted by looking at historical macroeconomic relationships.
C)are easy to predict.
D)are known to the government.
E)can be determined by looking at macroeconomic data.

Question 21

The development most responsible for the wide-spread introduction of macroeconomic models built upon solid microeconomic foundations was the

A)development of the Keynesian coordination failure model.
B)the work of Milton Friedman.
C)rational expectations revolution.
D)popularization of the Solow growth model.
E)work of John Maynard Keynes.

Question 22

The business cycle component of the log of real per capita GDP is equal to

A)log of trend per capita GDP - log of actual real per capita GDP.
B)log of trend GDP divided by log of actual real GDP.
C)log of trend GDP - log of actual real GDP.
D)log of actual real per capita GDP - log of trend per capita GDP.
E)log of actual real GDP divided by log of trend GDP.

Question 23

The basic structure of a macroeconomic model includes the description of this feature

A)a herd of cows.
B)the density of cities.
C)isotherms.
D)consumers' preferences over goods.
E)average annual rainfall.

Question 24

Which of the following best describes the unemployment rate in Canada compared to the United States?

A)It was lower in Canada before the 2008-2009 recession, then higher after.
B)They were equal before the 2008-2009 recession, then higher in Canada after.
C)It was higher in Canada before the 2008-2009 recession, then lower after.
D)They are generally equal.
E)It has been consistently lower in the United States, before and after the 2008-2009 recession.

Question 25

One consequence of government deficits is

A)reduced consumer spending.
B)redistribution of the tax burden from one group to another.
C)lower taxes.
D)lower interest rates.
E)reduced government borrowing.

Question 26

When there is high inflation

A)the nominal interest rate is always greater than the real interest rate.
B)interest rates fall due to government policy.
C)the real interest rate is always negative.
D)the nominal interest rate is approximately equal to the real interest rate.
E)the real interest rate is always greater than the nominal interest rate.

Question 27

The two key business cycle events in Canadian economic history were

A)the productivity slowdown and the Great Depression.
B)government budget deficits and World War II.
C)the Great Depression and stagflation.
D)World War II and the Great Depression.
E)the Great Depression and government budget deficits.

Question 28

To be useful, macroeconomic models

A)never generate testable hypothesis.
B)must be extremely realistic.
C)must be complete, accurate descriptions of the world.
D)provides a lot of intricate details.
E)must be simple.

Question 29

Sometimes it is useful to separate economic movements into

A)short-run growth and business cycle fluctuations.
B)long-run growth and business cycle fluctuations.
C)short-run growth and income movements.
D)long-run growth and income movements.
E)employment growth and business cycle fluctuations.

Question 30

Since 1980, the real interest rate

A)has increased worldwide.
B)has declined only in Canada.
C)has decreased only in Canada.
D)has decreased worldwide.
E)has been roughly constant.

Question 31

Business cycles in macroeconomics are

A)the economic interrelationships among nations.
B)profits and losses of firms.
C)short-run ups and downs in aggregate economic activity.
D)the increase in a nation's productive capacity over a long period of time.
E)changes in the average standard of living over time.

Question 32

Monetary policy in Canada is determined by

A)the Bank of Canada.
B)the Royal Canadian Mint.
C)the Prime Minister of Canada.
D)the Finance Minister.
E)the Bank of Montreal.

Question 33

Improvements in a country's standard of living are brought about in the long run by

A)immigration policy.
B)growth in the population.
C)constructing more machines and buildings.
D)taxes.
E)technological progress.

Question 34

Since World War II, deviations from trend real GDP per-capita are

Question 35

Gross Domestic Product is

A)the quantity of goods produced within a country's borders during some specific period of time.
B)the quantity of goods and services produced by Canadian residents domestically and abroad during some specific period of time.
C)the quantity of goods and services produced within a country's borders during some specified period of time.
D)the aggregate quantity of income earned by consumers who have jobs during some specified period of time.
E)the quantity of goods produced by Canadian residents domestically and abroad during some specific period of time.

Question 36

Which of the following is a fundamental question of macroeconomics?

A)What mechanism could force people to pollute less?
B)Where is the stock market heading?
C)Should governments act to smooth business cycles?
D)What is the impact of government provided health care?
E)How should governments be elected?

Question 37

The relationship between the level of growth of an economic variable, gt, and its level, yt, is best approximated as

Question 38

According to real business cycle theory, the primary causes of business cycles are

A)shocks to aggregate demand.
B)monetary factors.
C)technology shocks.
D)waves of self-fulfilling optimism and pessimism.
E)fiscal shocks.

Question 39

In the long run, inflation is caused by

A)greedy monopolists.
B)global warming.
C)aggressive labour unions.
D)growth in the money supply.
E)the tradeoff between aggregate output and inflation.

Question 40

Unemployment, at the aggregate level

A)is avoidable.
B)is zero in a perfect world.
C)is consistent with a well-functioning economy.
D)is a sign of market failures.
E)can be prevented with sound government policy.

Question 41

What is produced and consumed in the economy is determined jointly by

A)the behaviour of business managers and government policies.
B)the preferences of consumers and the behaviour of business managers.
C)the economy's productive capacity and the preferences of consumers.
D)standards of living and business cycles.
E)government policies and the economy's productive capacity.

Question 42

Macroeconomists tend to agree on

A)that all business cycles are due to self-fulfilling optimism and pessimism.
B)approaches to constructing models of economic growth.
C)the implications of real business cycle theory for government policy.
D)the usefulness of Keynesian models.
E)nothing.

Question 43

The 1981-82 recession in Canada

A)was caused by an increase in oil prices.
B)was a side effect of tight monetary policy.
C)was coincident with the global financial crisis.
D)was the least-severe recession in the 1961 2018 period.
E)was caused by fiscal policy.

Question 44

Since 1870, the typical Canadian

A)became twice as rich.
B)became more than sixteen-times as rich.
C)became ten-times as rich.
D)remained as rich as the typical American.
E)remained equally as rich.

Question 45

When a country has a current account deficit, the country

A)is always borrowing from domestic residents.
B)is always lending abroad.
C)always has a large government budget surplus.
D)always has a large government budget deficit.
E)is always borrowing from abroad.

Question 46

When a country has a current account surplus, the country

A)is always borrowing from domestic residents.
B)always has a large government budget deficit.
C)is always lending abroad.
D)always has a large government budget surplus.
E)is always borrowing from abroad.

Question 47

Business cycles are

A)similar, and all are created from external forces.
B)similar, but they can have many causes.
C)each unique, and they can have many causes.
D)similar, and they all have a single cause.
E)each unique, but all have a single cause.

Question 48

The idea that government budget deficits do NOT matter under certain circumstances is

A)preposterous.
B)called the Milton Friedman theory.
C)called the Friedman-Lucas theory.
D)called the Ricardian equivalence theorem.
E)attributed to Edward Prescott and Finn Kydland.

Question 49

In the 2008-09 recession, the government deficit

A)stayed roughly constant.
B)decreased.
C)would have increased if the government had intervened.
D)increased.
E)was reduced by the Bank of Canada.

Question 50

What do we assume about households and firms?

A)They optimize.
B)They look after each other.
C)They act irrationally.
D)Their interests are rarely aligned.
E)They do what the government tells them to do.

Question 51

The government surplus is the same as

A)outlays less income.
B)private saving.
C)investment income.
D)government saving.
E)government deficit less government saving.

Question 52

The Canadian recession of 1981-82

A)was likely caused by the problems in the mortgage industry in the United States.
B)had nothing to do with the Bank of Canada.
C)was the most-severe of the 1961-2018 period.
D)was the last recession in Canada during the 20th century.
E)was the least-severe of the 1961-2018 period.

Question 53

Adam Smith's Wealth of Nations emphasized

A)that Scotland produced several key technological innovations.
B)how free markets produce socially efficient outcomes.
C)mercantilism.
D)that the government should intervene to smooth business cycles.
E)the existence of externalities.

Question 54

For the study of economic growth, it is most helpful to examine movements in ________; for the study of business cycles, it is most helpful to examine movements in ________.

A)trend income; deviation from trend in income
B)trend GDP; trend GDP
C)deviations from trend in GDP; trend GDP
D)trend GDP; deviations from trend in GDP
E)deviations from trend in GDP; deviations from trend in GDP

Question 55

The Fisher relation is

A)the negative relationship between unemployment and vacancies.
B)trend growth in real GDP.
C)the Phillips curve.
D)of no interest to economists.
E)a positive relationship between the nominal interest rate and inflation.

Question 56

One possible explanation of the higher unemployment rate in Canada relative to the United States before the 2008 2009 recession is

A)more job training programs in Canada.
B)less generous unemployment benefits in Canada.
C)more generous unemployment benefits in Canada.
D)U.S. government policy was more effective in managing business cycles.
E)a larger population in the United States.

Question 57

Money is differentiated from other assets due to

A)its value as smoothing out business cycles.
B)its value as a unit of account.
C)its value as a medium of exchange.
D)its invulnerability to inflation.
E)its value of facilitating government spending.

Question 58

The 2007-08 recession in Canada

A)was worsened by fiscal policy actions.
B)was the most severe recession in the 1961-2018 period.
C)was caused by tight monetary policy.
D)was the result of the failure of the Canadian banking system.
E)originated in the United States.

Question 59

New Keynesian Theory

A)includes microeconomic foundations and does not rely on sticky wages or prices.
B)specifies financial markets as the primary cause of business cycles.
C)relies on sticky wages and prices but does not include microeconomic foundations.
D)uses the same microeconomic foundations as other macro models.
E)specifies shocks to technology cause business cycles.

Question 60

Which of the following is a fundamental question of macroeconomics?

A)What causes sustained economic growth?
B)How should a labour contract be structured?
C)What causes the health care industry to prosper?
D)What is the effect of penalties on crime?
E)How should governments be elected?

Question 61

Explain why macroeconomists tend to use models to understand how economies work, rather than doing
experiments.